In Sterling Merch., Inc. v. Nestlé, S.A., 656 F.3d 112 (1st Cir. 2011), the First Circuit Court of Appeals upheld summary judgment in favor of Nestlé, S.A. (“Nestlé”) for lack of standing. Sterling Merchandising Inc. (“Sterling”) sued Nestlé and its subsidiaries for violating the Clayton Act, 15 U.S.C. §§ 12-27, the Sherman Act, 15 U.S.C. §§ 1-7, antitrust laws, and various Puerto Rican laws. On June 23, 2010, the United States District Court of Puerto Rico granted summary judgment in favor of Nestlé. Sterling subsequently filed this appeal.
In the complaint, Sterling alleged that Nestlé engaged in anti-competitive conduct from June 2003 through October 2009. Sterling contested the Nestlé merger with Payco Foods Corporation (“Payco”) in 2003 that made Nestlé the largest ice cream distributor in Puerto Rico and making Sterling the second largest distributor. The Puerto Rico Office of Monopolistic Affairs approved the merger upon stipulated conditions. Sterling did not allege breach of any of those conditions. Instead, Sterling presented a two-part injury and damages theory. First, Sterling alleged that but-for Nestlé’s exclusivity agreements with a multitude of grocery stores, Sterling missed out on an additional $21-29 million in gross sales. Second, Sterling alleged that Nestlé’s merger limited Sterling’s market share and caused a decrease in efficient operations.
The district court found that the Puerto Rico ice cream distribution market expanded during the relevant time period, the merger did not restrict output, consumer prices did not increase, and on certain products consumer prices actually decreased. The record also showed that before the merger, Payco and Nestlé had a combined 85% market share, and by 2007, the combined market share fell to 70%. Sterling’s market share on the other hand, increased from 14.7% in 2003 to 22% in 2008. Sterling’s sales, which declined $1.06 million from 2001 to 2003, increased after the merger at an average of 11% a year.
To determine whether Sterling had standing, the court considered “(1) the causal connection between the alleged antitrust violation and harm to the plaintiff; (2) an improper motive; (3) the nature of the plaintiff’s alleged injury and whether the injury was of a type that Congress sought to redress with the antitrust laws (‘antitrust injury’); (4) the directness with which the alleged market restraint caused the asserted injury; (5) the speculative nature of the damages; and (6) the risk of duplicative recovery or complex apportionment of damages.”
The First Circuit applied the Supreme Court’s six-factor standing test, and emphasized causation of the injury. The court reinforced that, “absence of ‘antitrust injury’ will generally defeat standing” and measured injury by a decrease in output and an increase in prices in the relevant market. Sterling’s expert failed to show evidence that output within the Puerto Rico ice cream market declined or that consumer prices increased after the merger. In addition to the findings that the Puerto Rico ice cream market statistics did not support Sterling’s argument, Sterling could not attribute any injury directly caused by Nestlé. Sterling argued that a “plaintiff’s post-violation successes do not necessarily preclude compensation.” However, the First Circuit disagreed with Sterling’s alternatives to the classic evidence of antitrust injuries.
Sterling also failed to show the requisite injury. Under §2 of the Sherman Act, Sterling must show that Nestlé’s monopoly power prevented competitors from entering the market. However, new competitors entered the Puerto Rico ice cream market after the merger. Without establishing any injury to itself or to the competiveness of the market, Sterling’s claims lacked standing.
The primary materials for this case may be found on the DU Corporate Governance website.